Employee 401(k) Committee FAQs

I recently found a great example of the power of employee engagement in action at a plumbing company. This employer leaned on an employee 401(k) committee to assist in managing the company’s plan. Employee representatives take an active role in voicing questions and concerns on behalf of their peers. And they also work closely with the owner to make final management decisions. Seeing this firsthand got me thinking about the positive impact employee committees can have on a company’s 401(k), and it inspired me to answer some of the most frequently asked questions I hear on the subject. As an employer sponsoring a 401(k) plan, creating an employee committee can help you share your fiduciary responsibility.

Read through these common questions and answers to learn if an employee committee is right for your company and, if so, get started building your own.

What kinds of companies commonly have 401(k) committees?

I most commonly see employee committees at non-profits, law firms, and companies with 250 or more employees, though they can add value for many other types and sizes of companies. Having a committee is just one more best practice to help meet the responsibility of ongoing oversight on a company 401(k).

Who can participate in an employee 401(k) committee?

Any employee can join a 401(k) committee, regardless of whether or not they actually participate in the plan. Ideally, a committee will serve as a cross-section of the broader employee base in order to capture the voices of different types of employees. This can extend to anything from having different levels of employees represented, to different departments and roles, and even varying experience levels.

How do I ask my employees to join our 401(k) committee?

Your committee can be as formal or informal as you’d like, and so can your recruitment process. Some employers choose to casually invite employee representatives to an annual review of the plan, while others develop complex application processes requiring employees to proactively seek out membership. The key is documentation; once you decide how you’d like to select members, write down your membership process so your committee has clear guidelines for recruitment and participation. I often see committees start with a few employees who have volunteered to put together a 401(k) committee charter outlining the group’s roles, responsibilities, meeting frequency, and new membership procedures.

What decisions can an employee 401(k) committee be involved in?

An employee committee can be involved in any and all functions of managing a 401(k) plan. Your committee can help you evaluate and hire service providers, determine the level of service you receive on the plan, and serve as an investment committee to review investments within your plan’s fund lineup. There’s also the question of the scope of your committee’s work. Do you want your representatives to simply report employee sentiments to you? Or maybe you want their recommendations to consider as you make final decisions? It’s also possible that you entrust your employee committee to vote and decide issues of their own accord. It’s up to each employer to decide how involved their employee committee will be, and to document that scope in a formal 401(k) committee charter.

Do employee representatives take on 401(k) fiduciary responsibilities?

Yes, any individual member of your committee will take on personal 401(k) fiduciary responsibility for your plan. Being a fiduciary means you and any employee representatives have a personal, legal responsibility to make reasonable decisions in the best interests of anyone who participates in the plan. Sometimes employers put together a document for committee members to sign that explains this concept in detail. It’s best practice for any fiduciary to document their decisions in their fiduciary audit file—so make sure it’s in your 401(k) committee charter that your committee takes meeting minutes and documents decisions and actions they take. I always encourage anyone involved in managing a 401(k) plan to place a high importance on documentation.

How often do employee 401(k) committees meet?

The frequency of committee meetings really depends on the needs of your plan, with a special focus on the level of investment management support you receive from your 401(k) service providers. Not all providers are the same when it comes to investment management, but generally fall into one of a few categories:

• 3(21) Investment Advisers can make recommendations about the investment lineup in your plan, but they only share your fiduciary liability when it comes to your investments and do not actively manage the investments on your behalf.

• 3(38) Investment Managers do act as full investment-related fiduciaries, and take on all responsibility in selecting, monitoring, and updating your plan’s investments at their discretion.

• Other Advisers may be called “advisers,” but, because they are not fiduciaries, they cannot offer any investment advice or management.

If you work with a 3(38) Investment Manager, your committee may only need to meet once per year to review your provider’s performance because your provider will already be keeping an eye on your fund lineup and will manage your investment options accordingly. If you do not receive 3(38) help, your committee may need to meet more often as an investment committee, at least semi-annually, to review your plan’s investments, look for new potential investment options, and adjust the fund lineup as needed. For more information about the differences between 3(21) and 3(38) providers, review this article.

What resources exist to help educate my employee representatives?

There are lots of 401(k) resources available on the web both for employers and employee committee members. I recommend looking at the events and programs offered by The Plan Sponsor University, like their Certified 401(k) Fiduciary program. Fi360, an independent fiduciary services firm, offers a training program called Fiduciary Essentials® for Defined Contribution Plans, an online training course with multiple options to help you train up just one person or an entire team. You can also ask your 401(k) service provider for their help in providing training and materials to educate your committee.

With the answers to these basic questions, your next step is to ask your own questions about how an employee 401(k) committee would fit into your company. Share this article with key employees and start a conversation around what your ideal committee looks like.

 

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